Friday, October 30, 2009

The "biophysical economics" arguement

Energy-centric "biophysical economics" is the latest in the series of inter-disciplinary invasions of the narrowly defined field of economics in the past few decades. Putting a doomsday spin to the "dismal science", they contradict the conventional wisdom of constant long-term economic growth, and argue that the diminishing supply of world's energy resources raises serious concerns about the "limits to growth" and the future of mankind.

Their arguement revolves around an "understanding that the survival of all living creatures is limited by the concept of energy return on investment (EROI) - that any living thing or living societies can survive only so long as they are capable of getting more net energy from any activity than they expend during the performance of that activity". This understanding is to be read with the Second Law of Thermodynamics, which postulates that all energy systems have a tendency to increase their entropy (or the state of disorder) rather than decrease it.

The most obvious battle-ground for the two is the debate about global energy reserves. While conventional economic theories see no limits to the availability of energy resources, and claim that at an appropriate market price (equal to the marginal cost of production) supply will always meet the demand. In contrast, echoing peak-oil (or peak-coal and peak-gas) hypothesis, bio-physical economists analyze historical production data, and claim that petroleum sector's EROI in the US has steadily declined from about 100-to-1 in 1930 (meaning one had to burn approximately 1 barrel of oil's worth of energy to get 100 barrels out of the ground) to less than 36-1 by the 1990s and further down to 19-to-1 by 2006.